July 02, 2020

NCUA, FI regulators issue guidance on LIBOR transition

NCUAFederal financial regulators, including the NCUA, issued an interagency statement Wednesday to highlight risks resulting from the transition away from the London Inter-bank Offered Rate (LIBOR) for consumers and regulated entities. LIBOR is set to stop publishing after 2021 and the Secured Overnight Financing Rate (SOFR) has been identified as its alternative.

The statement encourages supervised institutions to continue their efforts to transition to alternative reference rates to mitigate legal, operational, and consumer protection risks.

“The financial services industry uses LIBOR as a reference rate for many financial products and instruments that include loans, investments, and deposits to a range of customers, as well as borrowings and derivatives,” wrote the regulators. “While some smaller and less complex institutions may have limited exposure to LIBOR- denominated instruments, the transition to alternative reference rates will affect almost every institution.”

In addition, the group of financial regulators, which also includes the CFPB, Board of Governors of the Federal Reserve, Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC), noted the legal and consumer compliance risks associated with inadequate fallback language – specifically, when the contractual language does not touch LIBOR being permanently discontinued.

Read the full statement here.

The CFPB released several resources and a notice of proposed rulemaking in an effort to ease the transition away from LIBOR. In addition, the Federal Housing Finance Agency (FHFA) announced new websites from the government-sponsored enterprises (GSEs) that include transition timelines, playbooks detailing key transition milestones and recommended actions for stakeholders to consider, and FAQs.

NAFCU will continue to keep credit unions informed of resources available to effectively transition away from LIBOR.